Court supervision of discontinuance of representative actions

When commercial parties to litigation agree to settle their dispute on terms prior to trial, ordinarily the only thing left to do is to notify the court and file a notice of discontinuance.

However, where proceedings are brought as representative (or class) actions and the settlement will bind, “absent” class members who have not been involved in negotiations, settlement and discontinuance require judicial supervision. The Court has a role in ensuring that the settlement terms and mechanisms for distribution of settlement funds are in the interests of all class members. This supervisory role is especially important where the proceedings involve third party litigation funders, whose interests can diverge from those of the absent class members.

In September 2023 Gault J gave his decision granting leave to discontinue two representative actions (both third party funded) against CBL Corporation and its directors, after the parties reached a conditional settlement. Although the applications were not opposed, the judgment is lengthy and detailed, following a full day of submissions from counsel. Gault J also approved mechanisms proposed by the representative plaintiffs in each proceeding for distribution of settlement funds to class members.


The two proceedings in question, brought by competing (and separately funded) representative plaintiffs, relate to events in the lead-up to the collapse of the CBL group of companies. Both lead plaintiffs obtained leave to bring their proceeding against CBL and its directors in a representative capacity on behalf of shareholders who lost money when trading of shares in the NZX and ASX listed company was halted in early 2018 and it was ultimately placed into liquidation. Both were “opt-in” actions where class members were required to execute an agreement with the litigation funder governing conduct of the litigation and distribution of proceeds. In each instance, the Court made it a condition of the representative orders that the plaintiffs could only discontinue their proceedings with leave of the court.

In February 2023 the parties to these two shareholder actions (and two separate proceedings by liquidators of CBL companies) entered into a heads of agreement for joint settlement of all four claims. The settlement was conditional on the representative plaintiffs obtaining leave to discontinue their proceedings.

The Court directed a timetable for the representative claimants to write to their class members with the settlement proposal and discontinuance applications. The two applications were heard together. No class members opposed the applications.

The Decision

The Court affirmed its adjudicative power under its protective or supervisory jurisdiction to oversee and approve a settlement and method of distribution in a representative action. The main task is to assess whether the settlement is a fair and reasonable compromise of the claims in the circumstances. It is not the task of the Court to second-guess or go behind the strategic decisions of the plaintiffs’ counsel. Rather, the task is to satisfy itself that the proposed settlements are within a reasonable range of decisions.

The Court adopted the list of factors for consideration set out in Ross v Southern Response. These include:

  • Future expense, likely duration of litigation and risk.
  • The likelihood of recovery or success.
  • The presence of good faith, arms-length bargaining and the absence of collusion.
  • The terms of settlement.
  • Whether the fees of counsel or funders were negotiated as part of the settlement.
  • The recommendation and experience of counsel and neutral parties (if any).
  • Whether class members were given timely notice of the essential elements of the settlement, and the number and nature of any objections.

The predominant factor in this case was the limited availability of assets against which to recover and the likelihood that these would be substantially eroded if the numerous interrelated claims proceeded to trial. CBL Corporation was in liquidation and had a finite pool of insurance funds. The trial of the shareholder representative proceedings was set to run for more than eight months from early 2024 (in conjunction with claims against CBL Corporation by the Financial Markets Authority). In the absence of a statutory charge over the insurance funds (as insurers were resident outside NZ), the policy limits would have been significantly eroded by continued defence of the claims by CBL Corporation and its directors.

So, while both representative plaintiffs had received advice that their claims were strong and they might expect to prevail in obtaining judgment for sums significantly in excess of what they would receive under the proposed settlement, the likelihood of actually recovering any such amount was extremely remote.

The Court considered a number of other factors in some detail, including a robust negotiation process and the absence of opposition from class members to the terms. However, the likelihood of recovery was the overriding factor in persuading the Court that the settlement was a fair and reasonable compromise of the shareholder claims.

Gault J was also asked to approve the method of distribution proposed by each set of representatives. As with settlement, the touchstone was a requirement that the distribution be fair and reasonable. The Court commented there is no single approach which alone can qualify as reasonable. The question can therefore only be whether the proposed distribution method is within the bounds of reasonableness, in its attempts to balance what are, unavoidably, conflicts between competing interests of different claimants.

Although the two representative plaintiffs took different approaches, the Court ultimately approved both as meeting this broad test of reasonableness.


This case is a useful addition to the body of law governing court supervision of representative actions in the absence of a statutory class actions regime in New Zealand. It further entrenches the preference for court oversight of class settlement, even for “opt-in” claims where class members have agreed in advance to terms governing conduct of the litigation.

Although leave to discontinue was ultimately approved, the careful scrutiny of a wide range of factors by the Court in this instance signals that approval of class settlements should not be seen as merely a rubber stamp exercise.

If you would like to know more about the issues discussed in this article, please contact Andrew Coglan or Andrea Challis.

This publication is intended as a general overview and discussion of the content dealt with. It should not be used in any specific situation, in which case you should seek specific legal advice.